Los Angeles

Los Angeles Prepares for Year of Declining Revenues, Cuts Anticipated Due to Coronavirus

Los Angeles' entire budget is proposed to be about $10.5 billion for the next fiscal year, which begins July 1, with an operating general fund of about $6.6 billion.

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The coronavirus pandemic has wreaked havoc on the Los Angeles city budgeting process, with revenue projections much lower than anticipated and cuts anticipated for departments in the next fiscal year, city administrators said Monday.

The decline in revenue will force Los Angeles to use an estimated $188 million in reserves by the end of this fiscal year, the highest amount since the 2009-10 financial crisis. The city expects revenue during the current fiscal year to come in about $108 million short of what was originally budgeted.

But the true extent of the damage will be contingent on how quickly the economy restarts and when more businesses are permitted to open under the Safer at Home orders, city officials said.

Los Angeles' entire budget is proposed to be about $10.5 billion for the next fiscal year, which begins July 1, with an operating general fund of about $6.6 billion.

From mid-March to mid-April, Los Angeles used $44 million to address staffing needs during the pandemic. Of that, 75% is expected to be reimbursed by the Federal Emergency Management Agency, which does not cover salaries. The reimbursement from FEMA is only for COVID-19 responses for overtime pay, emergency services, senior meals, hospital surge, small businesses loans, rent assistance, coronavirus testing and other issues.

The city is already trying to furlough 15,000 employees, to the tune of about 10% in reduced annual pay, in order to save about $139 million. Most public safety positions are exempt from that proposal. The City Council's Budget and Finance Committee will hear a report on furloughs at its next meeting, which has yet to be scheduled.

The city is also in a hiring freeze across most departments.

City Administrative Officer Richard Llewellyn told the committee Monday that during past disasters, some expenses that were not covered by FEMA were usually funded by the state, but he said it's uncertain if that will happen during the COVID-19 pandemic.

"It's very difficult to project our expenditures by year end," Llewellyn said.

The city was already reported to be over-spending by about $86 million earlier in the fiscal year, much of that due to contractual obligations and personnel raises.

Of the $145 million Los Angeles has put into its COVID-19 emergency fund, about $27 million is left, according to documents from the office of the City Administrative Officer. The rest has been earmarked or approved to be spent.

About $125 million of the COVID-19 emergency fund is in the form of loans that have to be repaid to the city's Building and Safety Building Permit Enterprise Fund.

The budget process this year, according to Councilman Paul Krekorian, who chairs the Budget and Finance Committee, will not examine each department's budget in an individual hearing. That practice was being suspended due to the risk of having hundreds of people at City Hall during the pandemic and because the financial outlook for the government is still unclear, he said.

"This is obviously not a business-as-usual time," Krekorian said. "Frankly, the information that's available to us now is insufficient. ...Until we see more stability in the economy, until we have a greater ability to predict what our revenues are going to be, it would be a fool's errand to go into the kind of in-depth analysis on a departmental level."

Los Angeles estimates it will receive about $694 million in federal coronavirus relief, but those funds can be used only for responding to the virus and have to be spent by the end of 2020. The funds cannot be used to replenish revenues the city anticipated it would have received prior to the pandemic.

Los Angeles is expected to receive about $45 million in other federal grants related to housing homeless people.

The Department of Water and Power could also see potentially significant revenue losses if it's unable to collect bills payments during the pandemic. Mayor Eric Garcetti said the utility provider will not shut off service for people who have been financially affected by the pandemic and are unable to pay their bills. People will still have to pay the money eventually, but a timetable on those repayments has not yet been set, Garcetti said.

"We're better prepared now than we were in 2008,'' Krekorian said, referencing the city's robust reserve fund that it's had to tap into. "In many ways, the challenges are even greater. There's less reliable information available to us now than there was then. There are many more variables that could cause the city's financial situation to get worse before it gets better."

Krekorian said the city has to have a budget balanced before July 1, and there will be a rough draft available before that time, but it will likely have to be changed "significantly" throughout the next fiscal year.

He said if the mayor's proposed budget is 1% off of its revenue projections, that could amount to a deficit of $5.5 million in the city's general fund.

Krekorian said this could be the greatest challenge the Budget and Finance Committee has undertaken in the city's recent history.

The budget will have to be passed by the Los Angeles City Council and signed by Garcetti by June 30.

"The highlights are, it's not good. We're going to end this year with weakened reserves and increased liabilities," Llewellyn said. "There's just no way to sugarcoat it."

Copyright CNS - City News Service
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